The paper highlights significant factors contribute to Malaysian palm oil (PO) price movement with focuses on production and stock and its impact on crude palm oil (CPO) prices in 2016. Both supply and demand factors play a significant role in term of influencing the PO price movement. PO price movement is also dependent on the market sentiment factor which is unpredictable as an example El Niño (extreme hot weather phenomenon). From the supply perspective, the PO stock build-up had contributed to the PO price bearishness in 2015. Meanwhile, weaker soyabean oil prices and export demand from major importing countries have become significant factors in contributing to the decline in CPO prices in 2015. However, the implementation of B7 programme helps to increase intake of PO in the local market, thus help contribute to minimize the PO price decline in 2015. Besides that, the introduction of the oil palm replanting scheme (SITS 2015) with an allocation of RM100 million also expected to reduce PO supply in 2016. The scheme is expected to see the replanting of 83,000 hectares of unproductive palms and palms over the age of 25 years and expected to reduce PO supply around 250,000 tonnes in 2016. The analysis shows that, with mildly El Niño effect, CPO production and PO stock are projected at 20.01 Mn T and 2.69 Mn T respectively in 2016. However, with strongly El Niño effect, CPO production and PO stock are projected to be declining further at 19.40 Mn T and 1.97 Mn T respectively in 2016. Therefore, it is believed that this scenario will indeed be a positive indication for the firming of CPO prices in the marketplace in 2016.

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Questions & Answers (4) :

M. AYATOLLAH KHOMEINI AB RAHMAN

2 years ago

Thank you Tuan Jaaffar for the invaluable question. On behalf of En. Balu I would like to answer this question. As you might aware, the government always closely monitors the development of Malaysia and Indonesia palm oil export policy, especially on the impact to the Malaysian oil palm industry’s competitiveness. This issue is currently being addressed by MPOB through an in-depth study. The input/feedback received from the industry will be formulated to enhance the policy recommendation.

M. AYATOLLAH KHOMEINI AB RAHMAN

2 years ago

Thank you Mr. Mohamad Raid Majzoub for the question. On behalf of Mr. Balu, I strongly agree with your argument. This is because palm oil production will be at peak during September to October every year. As agreed by many experts, the El Nino event happened in 2015 to the 1st quarter of 2016 was the strongest El Nino since 1997/1998. Even though the real impact of this event is not fully observed yet, the worries of supply disruption in the 2nd half of 2016 have driven market sentiment to push the price of vegetable oils higher especially during the 1st half of 2016.

Mohammad Jaaffar Ahmad

2 years ago

Thank you Mr. Balu. In your conclusion, you have said that Malaysian PO export is expected to increase further in 2016, if Malaysian Govt. revises its PO export policy. As MPOB is a government agency, can you be more specific on any proposed policy changes being recommended to the Govt. and when this is going to happen? TQ

Mohamad Raid Majzoub

2 years ago

Dear Mr. N. Balu,
Thank you for the useful presentation, the price outlook shows that El Nino may reduce US Soybean production with note that US Soybean harvest during September – October and the real effect will be known only when the harvest starts.
In my opinion at the same period of the year it will be the pick season of the OP which could balance the shortage in USA thus CPO prices will not be impacted in this factor. Do you think it is a right opinion?